### Educational Material on Contribution Format Income Statement and Break-even Analysis#### Contribution Format Income Statement AnalysisDue to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Incorporated, has been experiencing financial difficulties for some time. The company’s contribution format income statement for the most recent month is given below:- **Sales (20,000 units at $30 per unit):** $600,000- **Variable expenses (20,000 units at $12 per unit):** $240,000- **Contribution margin:** $360,000- **Fixed expenses:** $368,000- **Net operating loss:** $(8,000)#### Required Tasks:1. **Compute the company's CM ratio and the break-even point in unit sales and dollar sales.**2. **The president believes that a $56,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an increase in monthly sales by 7,500 units. Prepare a contribution format income statement for the month based on the above assumption.**3. **Refer to the original data. The sales manager's computer indicates that a 10% reduction in the selling price, combined with an increase of $40,000 in the monthly advertising budget, would increase monthly sales by 5,000 units. Prepare a contribution format income statement for the month based on these assumptions.**4. **Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop computer battery would help sales. The new package would increase packaging costs by $0.70 per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $4,700?**5. **Refer to the original data. By automating certain operations, the company could reduce variable expenses by $3.00 per unit. However, fixed expenses would increase by $93,000 each month.** 1. **Compute the new CM ratio and the new break-even point in unit sales and dollar sales.** 2. **Assume that the company expects to sell 24,000 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are. Show data on a per unit and percentages basis, as well as in total for each alternative.** 3. **Would you recommend that the ### Contribution Income Statement Analysis#### Data Input InstructionsTo analyze the financial impact of automation on PEM, Inc.'s operations, input your answers in the designated tabs corresponding to each requirement (Req 1 to Req 5C).#### Initial ScenarioRefer to the original data provided. By automating, PEM, Inc. can reduce variable expenses by $3 per unit. However, fixed expenses will increase by $53,000 each month. It is assumed that the company will sell 20,900 units in the next month.#### Task RequirementsPrepare two different contribution format income statements:1. One assuming that operations are not automated.2. One assuming that they are automated.For both formats, data needs to be displayed on a per-unit and percentage basis, as well as in total.**Note:** Do not round intermediate calculations; round percentage answers to the nearest whole number.#### Contribution Income Statement TablesThe below table outlines the structure to fill in for both scenarios:**PEM, Inc. Contribution Income Statement**| | Not Automated | Automated ||-----------------------------------|------------------------------------|--------------------------------|| | Total | Per Unit | % | Total | Per Unit | % || Sales | $ | $ | | $ | $ | || Variable Expenses | $ | $ | | $ | $ | || Contribution Margin | $ | $ | | $ | $ | || Fixed Expenses | $ | $ | | $ | $ | || Net Operating Income (Loss) | $ | $ | | $ | $ | |#### Tabs for Responses- **Req 5A:** Fill in responses assuming operations are not automated.- **Req 5B:** Fill in responses assuming operations are automated.- **Req 5C:** Provide a comparative analysis between the 'Not Automated' and 'Automated' scenarios.By thoughtfully completing each section, you will better understand the financial implications of automation on PEM, Inc.’s operations.

Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Incorporated, has been experiencing financial difficulty for some time. The company's contribution format Income statement for the most recent month is given below. Sales (12,600 units - $38 per unit) Variable expenses $ 378,000 226,800 151,200 160,200 Contribution margin Fixed expenses Net operating loss $ (18,000) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes that a $6,600 Increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $82,000 per month. If the president is right, what will be the Incresse (decresse) In the company's monthly net operating Income? 3. Refer to the original dats. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $39,000 in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating Income (loss)?

Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Incorporated, has been experiencing financial difficulty for some time. The company's contribution format Income statement for the most recent month is given below. Sales (12,600 units - $38 per unit) Variable expenses $ 378,000 226,800 151,200 160,200 Contribution margin Fixed expenses Net operating loss $ (18,000) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes that a $6,600 Increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $82,000 per month. If the president is right, what will be the Incresse (decresse) In the company's monthly net operating Income? 3. Refer to the original dats. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $39,000 in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating Income (loss)?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Incorporated, has been experiencing financial difficulty for some time. The company’s contribution format income statement for the most recent month is given below: Sales (13,500 units × $20 per unit) $ 270,000 Variable expenses 162,000 Contribution margin 108,000 Fixed expenses 120,000 Net operating loss $ (12,000) Required: 1. Compute the company’s CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes that a $6,100 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $85,000 per month. If the president is right, what will be the increase (decrease) in the company’s monthly net operating income? 3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $30,000 in the…
Required information Skip to question [The following information applies to the questions displayed below.] Accents Associates sells only one product, with a current selling price of $150 per unit. Variable costs are 30% of this selling price, and fixed costs are $19,600 per month. Management has decided to reduce the selling price to $145 per unit in an effort to increase sales. Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price. At the current selling price of $150 per unit, the dollar volume of sales per month necessary for Accents to break-even is:
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Due to erratic sales of Its sole product--a high-capacity battery for laptop computers-PEM, Incorporated, has been experlencing financial difficulty for some time. The company's contribution format Income statement for the most recent month Is glven below: Sales (13,280 units x $28 per unit) Variable expenses Contribution margin Fixed expenses $ 264,000 132,000 132,000 147,880 Net operating loss $ (15,000) Required: 1. Compute the company's CM ratio and Its break-even polnt in unit sales and dollar sales. 2 The president believes that a $6.100 Increase In the monthly advertising budget, combined with an Intensified effort by the sales staff, will Increase unit sales and the total sales by $81,000 per month. If the president Is right, what will be the Increase (decrease) In the company's monthly net operating Income? 3. Refer to the original data. The sales manager is convinced that a 10% reduction In the selling price, combined with an Increase of $33,000 in the monthly advertising…
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Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Inc., has been experiencing financial difficulty for some time. The company’s contribution format income statement for the most recent month is given below: Sales (12,600 units × $20 per unit) $ 252,000 Variable expenses 151,200 Contribution margin 100,800 Fixed expenses 112,800 Net operating loss $ (12,000 ) Required: 1. Compute the company’s CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes that a $6,100 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $82,000 per month. If the president is right, what will be the increase (decrease) in the company’s monthly net operating income? 3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase…
Required information Skip to question [The following information applies to the questions displayed below.] Accents Associates sells only one product, with a current selling price of $150 per unit. Variable costs are 30% of this selling price, and fixed costs are $19,600 per month. Management has decided to reduce the selling price to $145 per unit in an effort to increase sales. Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price. At the current selling price of $150 per unit, what dollar volume of sales per month is required for Accents to earn a monthly operating income of $10,400?
Memofax Inc. produces memory enhancement kits for fax machines. Sales have been very erratic, with some months showing a profit and some months showing a loss. The company's contribution format income statement for the most recent month is given below. Sales (12,600 units at $40 per unit $504,000 Variable expenses Contribution margin Fixed expenses 302,400 201,600 Net operating loss 225,600 $(24,000) The sales manager feels that a $7,700 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in a $73,000 increase in monthly sales. If the sales manager is right, what will the revised net operating income or loss?
Due to erratic sales of its sole product—a high-capacity battery for laptop computers—TECH, Inc., has been experiencing financial difficulty for some time. The company’s contribution format income statement for the most recent month is given below:Sales (12,700 units × $30 per unit) $ 381,000Variable expenses 190,500Contribution margin 190,500Fixed expenses 213,000Net operating loss $ (22,500 )Required:1. Compute the company’s CM ratio and its break-even point in unit sales and dollar sales.2. The president believes that a $6,100 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $85,000 increase in monthly sales. If the president is right, what will be the increase (decrease) in the company’s monthly net operating income?3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $36,000 in the monthly advertising budget, will double unit…